OREANDA-NEWS. Spirit Airlines, Inc. (NASDAQ:SAVE) today reported second quarter 2016 financial results.

  • GAAP net income for the second quarter 2016 was $73.1 million ($1.03 per diluted share).  Excluding special items, net income for the second quarter 2016 was $78.5 million ($1.11 per diluted share)1.
     
  • On a GAAP basis, operating margin for the second quarter 2016 was 20.9 percent.  Adjusted operating margin for the second quarter 2016 was 22.3 percent2.
     
  • Unrestricted cash and cash equivalents as of June 30, 2016 was $1.0 billion.
     
  • Spirit's return on invested capital (before taxes and excluding special items) for the twelve months ended June 30, 2016 was 27.6 percent3.

"While in line with our expectations, our second quarter 2016 financial results were negatively impacted by continued pressure on yields.  Looking ahead, we see strong volumes for the peak summer leisure travel period but anticipate yield pressures will persist," said Bob Fornaro, Spirit's Chief Executive Officer.  "On the operations front, I'm pleased to report that the changes we're making to improve our on-time performance are beginning to take root.  For the second quarter 2016, we achieved our highest second quarter on-time performance in the last five years.  We still have a lot of work to do to achieve consistent reliability and improve our customer's overall experience, but I want to thank and congratulate the team for the progress made during the quarter."

Revenue Performance
For the second quarter 2016, Spirit's total operating revenue was $584.1 million, an increase of 5.5 percent compared to the second quarter 2015, driven by an increase in flight volume offset by a decrease in operating yields.

Total revenue per passenger flight segment ("PFS") for the second quarter 2016 decreased 15.0 percent, or $18.40, year over year to $104.19, primarily driven by a 22.6 percent, or $15.48, decrease in ticket revenue per PFS.  Non-ticket revenue declined 5.4 percent, or $2.92, year over year on a per flight segment basis to $51.32.  Although non-ticket revenue per passenger segment remains relatively stable, the Company has experienced modest pressure on take rates for certain ancillary items which it believes is correlated to low fare levels in its markets.   The Company has several new initiatives it plans to begin phasing in by year-end that should help mitigate these and other deflationary non-ticket pressures.

Cost Performance
Total GAAP operating expenses, including special items of $8.6 million4 primarily related to lease termination charges, increased 7.2 percent, or $31.2 million, year over year to $462.3 million.  Adjusted operating expense for the second quarter 2016 increased 4.5 percent, or $19.7 million, to $453.7 million5 on a capacity increase of 23.1 percent year over year.

Aircraft fuel expense decreased in the second quarter of 2016 by 11.5 percent, or $14.7 million, compared to the same period last year, due primarily to a 29.3 percent decrease in the average economic fuel cost per gallon6, partially offset by a 22.0 percent increase in fuel gallons consumed.

Spirit reported second quarter 2016 cost per available seat mile ("ASM") excluding special items and fuel ("Adjusted CASM ex-fuel")3 of 5.30 cents, a decrease of 8.6 percent compared to the same period last year.  The primary drivers of this improvement were lower aircraft rent per ASM this year, primarily driven by a change in the mix of leased and purchased aircraft, as well as higher expense in the second quarter last year related to an unusual number of flight cancellations and delays.  Additionally, the Company purchased one A319 aircraft formerly under a lease arrangement and negotiated four A319 aircraft lease extensions during the quarter, which contributed to lower aircraft rent per ASM.

"I am pleased to say that we remain on track to achieve adjusted CASM ex-fuel of about flat for the full year 2016," said Ted Christie, Spirit's Chief Financial Officer.  "Maintaining our ultra-low unit costs is core for Spirit, and our investments in operational improvement will yield benefits to the cost structure over the next year.  Consistent financial performance in a wide variety of macro environments is a true differentiator for the Spirit story, and one that will prove even more valuable as we head into the latter part of this decade."

Labor
During the second quarter, Spirit's flight attendants, represented by the Association of Flight Attendants - CWA ("AFA-CWA"), ratified an agreement for a five-year contract.  Also, during the second quarter, the Company's ramp service team members at Fort Lauderdale-Hollywood International Airport, represented by the International Associations of Machinists ("IAM"), also ratified an agreement for a five-year contract.

Fleet
During the second quarter 2016, Spirit took delivery of 4 new aircraft (1 A320ceo and 3 A321ceo aircraft), ending the quarter with 87 aircraft in its fleet.  Also, during the quarter, Spirit purchased one A319 off lease and extended leases on four additional A319 aircraft.

Share Repurchase
Under its current share repurchase authorization, Spirit repurchased approximately 1.2 million shares during the second quarter for $51.3 million.

Recent New Service Announcements
Boston - Orlando (10/7/16)
Philadelphia - Orlando (10/7/16)
Newark - Fort Lauderdale (10/30/16)
Newark - Orlando (10/30/16)
Kansas City - Orlando (11/10/16)
Akron-Canton - Fort Lauderdale (11/10/16)
Akron-Canton - Orlando (11/10/16)
Akron-Canton - Tampa* (11/10/16)
Akron-Canton - Fort Myers* (11/11/16)
Niagara Falls - Orlando (11/17/16)
Plattsburgh - Orlando (11/17/16
Baltimore - Fort Myers (11/10/16)
Baltimore - Tampa (11/10/16)
Newark - Myrtle Beach (3/9/17)
Akron-Canton - Myrtle Beach (4/27/17)*
Fort Lauderdale - Havana, Cuba (TBD)**

*seasonal
**Tentatively awarded by the Department of Transportation (DOT).  Final DOT determination is expected during the third quarter 2016.

About Spirit Airlines:
Spirit Airlines (NASDAQ:SAVE) is committed to offering the lowest total price to the places we fly, on average much lower than other airlines. Our customers start with an unbundled, stripped-down Bare Fare™ and get Frill Control™ which allows them to pay only for the options they choose - like bags, seat assignments and refreshments - the things other airlines bake right into their ticket prices. We help people save money and travel more often, create new jobs and stimulate business growth in the communities we serve. With our Fit Fleet™, the youngest fleet of any major US airline, we operate more than 425 daily flights to 56 destinations in the U.S., Latin America and the Caribbean. 

Investors are encouraged to read the Company's periodic and current reports filed with or furnished to the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, for additional information regarding the Company.

End Notes
(1) See "Reconciliation of Adjusted Net Income to GAAP Net Income" table below for more details.
(2) See "Reconciliation of Adjusted Operating Income to GAAP Operating Income" table below for more details.
(3) See "Calculation for Return on Invested Capital" table below for more details.
(4) See "Special Items" table for more details.
(5) See "Reconciliation of Adjusted Operating Expense to GAAP Operating Expense" table below for more details.
(6) See "Reconciliation of Economic Fuel Expense to GAAP Fuel Expense" table below for more details.

Forward-Looking Statements
Statements in this release and certain oral statements made from time to time by representatives of the Company contain various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act) which are subject to the "safe harbor" created by those sections. Forward-looking statements are based on our management's beliefs and assumptions and on information currently available to our management. All statements other than statements of historical facts are "forward-looking statements" for purposes of these provisions. In some cases, you can identify forward-looking statements by terms such as "may," "will," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "project," "predict," "potential," and similar expressions intended to identify forward-looking statements. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements. Additional risks or uncertainties (i) that are not currently known to us, (ii) that we currently deem to be immaterial, or (iii) that could apply to any company, could also materially adversely affect our business, financial condition, or future results. You should carefully consider the risks described below and the other information in this report. If any of the following risks materialize, our business could be materially harmed, and our financial condition and results of operations could be materially and adversely affected. References in this report to "Spirit," "we," "us," "our," or the "Company" shall mean Spirit Airlines, Inc., unless the context indicates otherwise.  Additional information concerning these and other factors is contained in the Company's Securities and Exchange Commission filings, including but not limited to the Company's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

 
SPIRIT AIRLINES, INC.
Statement of Operations
(unaudited, in thousands, except per share data)
               
  Three Months Ended       Six Months Ended    
  June 30,   Percent   June 30,   Percent
  2016   2015   Change   2016   2015   Change
Operating revenues:                      
Passenger $ 296,401     $ 308,573     (3.9 )   $ 569,027     $ 582,039     (2.2 )
Non-ticket 287,732     244,848     17.5     553,249     464,737     19.0  
Total operating revenues 584,133     553,421     5.5     1,122,276     1,046,776     7.2  
                       
Operating expenses:                      
Aircraft fuel 113,192     127,907     (11.5 )   199,174     240,333     (17.1 )
Salaries, wages and benefits 112,930     97,037     16.4     229,340     186,094     23.2  
Aircraft rent 49,864     53,127     (6.1 )   102,066     105,915     (3.6 )
Landing fees and other rents 39,944     33,364     19.7     74,751     63,910     17.0  
Distribution 24,692     22,349     10.5     47,625     42,846     11.2  
Maintenance, materials and repairs 20,627     21,271     (3.0 )   41,567     40,431     2.8  
Depreciation and amortization 24,957     17,139     45.6     48,066     32,002     50.2  
Other operating 67,511     58,173     16.1     131,556     101,920     29.1  
Loss on disposal of assets 529     415     27.5     743     1,010     (26.4 )
Special charges 8,052     324     nm     24,254     749     nm  
Total operating expenses 462,298     431,106     7.2     899,142     815,210     10.3  
                       
Operating income 121,835     122,315     (0.4 )   223,134     231,566     (3.6 )
                       
Other (income) expense:                      
Interest expense 10,166     4,419     nm     18,226     7,231     nm  
Capitalized interest (2,771 )   (2,829 )   (2.1 )   (6,096 )   (5,362 )   13.7  
Interest income (1,447 )   (177 )   nm     (3,013 )   (311 )   nm  
Other expense 157     44     256.8     227     116     95.7  
Total other (income) expense 6,105     1,457     nm     9,344     1,674     nm  
                       
Income before income taxes 115,730     120,858     (4.2 )   213,790     229,892     (7.0 )
Provision for income taxes 42,646     44,154     (3.4 )   78,786     84,186     (6.4 )
Net income $ 73,084     $ 76,704     (4.7 )   $ 135,004     $ 145,706     (7.3 )
Basic earnings per share $ 1.03     $ 1.06     (2.8 )   $ 1.90     $ 2.00     (5.0 )
Diluted earnings per share $ 1.03     $ 1.05     (1.9 )   $ 1.89     $ 1.99     (5.0 )
                       
Weighted average shares, basic 70,770     72,518     (2.4 )   71,173     72,784     (2.2 )
Weighted average shares, diluted 70,913     72,801     (2.6 )   71,347     73,083     (2.4 )
SPIRIT AIRLINES, INC.
Statements of Comprehensive Income
(unaudited, in thousands)
       
  Three Months Ended   Six Months Ended
  June 30,   June 30,
  2016   2015   2016   2015
Net income $ 73,084     $ 76,704     $ 135,004     $ 145,706  
Unrealized gain (loss) on interest rate derivative instruments,
net of deferred taxes of $0, $749, $0 and ($191)		 —     1,238     —     (356 )
Interest rate swap losses reclassified into earnings 88     —     178     —  
Other comprehensive income (loss) $ 88     $ 1,238     $ 178     $ (356 )
Comprehensive income $ 73,172     $ 77,942     $ 135,182     $ 145,350  
SPIRIT AIRLINES, INC.
Balance Sheets
(unaudited, in thousands)
       
  June 30,   December 31,
  2016   2015
Assets      
Current assets:      
Cash and cash equivalents $ 1,014,080     $ 803,632  
Accounts receivable, net 40,650     28,266  
Aircraft maintenance deposits 77,590     73,415  
Prepaid income taxes 2,835     72,278  
Prepaid expenses and other current assets 48,624     48,749  
Total current assets 1,183,779     1,026,340  
       
Property and equipment:      
Flight equipment 1,225,219     827,282  
Ground and other equipment 103,986     82,459  
Less accumulated depreciation (90,577 )   (65,524 )
  1,238,628     844,217  
Deposits on flight equipment purchase contracts 249,360     286,837  
Long-term aircraft maintenance deposits 201,925     206,485  
Deferred heavy maintenance, net 75,172     89,127  
Other long-term assets 81,336     77,539  
Total assets $ 3,030,200     $ 2,530,545  
       
Liabilities and shareholders' equity      
Current liabilities:      
Accounts payable $ 27,728     $ 17,043  
Air traffic liability 283,851     216,831  
Current maturities of long-term debt 78,596     49,637  
Other current liabilities 217,370     182,729  
Total current liabilities 607,545     466,240  
       
Long-term debt, less current maturities 836,418     596,693  
Long-term deferred income taxes 267,379     221,481  
Deferred gains and other long-term liabilities 19,541     20,821  
Shareholders' equity:      
Common stock 7     7  
Additional paid-in-capital 547,763     544,277  
Treasury stock, at cost (180,756 )   (116,182 )
Retained earnings 933,758     798,754  
Accumulated other comprehensive loss (1,455 )   (1,546 )
Total shareholders' equity 1,299,317     1,225,310  
Total liabilities and shareholders' equity $ 3,030,200     $ 2,530,545  
SPIRIT AIRLINES, INC.
Statement of Cash Flows
(unaudited, in thousands)
 
  Six Months Ended June 30,
  2016   2015
Operating activities:      
Net income 135,004     145,706  
Adjustments to reconcile net income to net cash provided by operations:      
Unrealized losses on open derivative contracts, net —     4,257  
Losses reclassified from other comprehensive income 178     —  
Equity-based compensation 3,905     4,743  
Allowance for doubtful accounts 221     8  
Amortization of deferred gains and losses 2,810     397  
Depreciation and amortization 48,066     32,002  
Deferred income tax expense 45,810     559  
Loss on disposal of assets 743     1,010  
Lease termination cost 24,254     —  
Changes in operating assets and liabilities:      
Accounts receivable (12,662 )   (8,137 )
Aircraft maintenance deposits (29,721 )   (4,621 )
Prepaid income taxes 69,444     —  
Long-term deposits and other assets (22,055 )   (10,930 )
Accounts payable 3,024     7,856  
Air traffic liability 66,531     90,056  
Other liabilities 25,269     36,728  
Net cash provided by operating activities 360,821     299,634  
Investing activities:      
Proceeds from sale of property and equipment 50     —  
Pre-delivery deposits for flight equipment, net of refunds (60,772 )   (70,971 )
Capitalized interest (4,554 )   (2,763 )
Purchase of property and equipment (303,175 )   (308,163 )
Net cash used in investing activities (368,451 )   (381,897 )
Financing activities:      
Proceeds from issuance of long-term debt 300,547     296,000  
Proceeds from stock options exercised 92     23  
Payments on debt and capital lease obligations (19,665 )   (8,940 )
Proceeds from sale and leaseback transactions —     7,300  
Excess tax benefit (deficiency) from equity-based compensation (511 )   8,504  
Repurchase of common stock (62,278 )   (79,415 )
Debt issuance costs (107 )   (4,669 )
Net cash provided by financing activities 218,078     218,803  
Net increase in cash and cash equivalents 210,448     136,540  
Cash and cash equivalents at beginning of period 803,632     632,784  
Cash and cash equivalents at end of period $ 1,014,080     $ 769,324  
Supplemental disclosures      
Cash payments for:      
Interest, net of capitalized interest $ 21,804     $ 1,758  
Income taxes paid, net of refunds $ (36,142 )   $ 54,198  
SPIRIT AIRLINES, INC.
Selected Operating Statistics (unaudited)
 
  Three Months Ended June 30,    
Operating Statistics 2016   2015   Change
Available seat miles (ASMs) (thousands) 6,419,419     5,213,299     23.1 %
Revenue passenger miles (RPMs) (thousands) 5,549,411     4,481,064     23.8 %
Load factor (%) 86.4     86.0     0.4 pts
Passenger flight segments (thousands) 5,606     4,514     24.2 %
Block hours 98,399     83,861     17.3 %
Departures 38,025     32,164     18.2 %
Total operating revenue per ASM (TRASM) (cents) 9.10     10.62     (14.3 )%
Average yield (cents) 10.53     12.35     (14.7 )%
Average ticket revenue per passenger flight segment ($) 52.87     68.35     (22.6 )%
Average non-ticket revenue per passenger flight segment ($) 51.32     54.24     (5.4 )%
Total revenue per passenger flight segment ($) 104.19     122.59     (15.0 )%
CASM (cents) 7.20     8.27     (12.9 )%
Adjusted CASM (cents) (1) 7.07     8.33     (15.1 )%
Adjusted CASM ex-fuel (cents) (2) 5.30     5.80     (8.6 )%
Fuel gallons consumed (thousands) 77,013     63,134     22.0 %
Average economic fuel cost per gallon ($) 1.47     2.08     (29.3 )%
Aircraft at end of period 87     73     19.2 %
Average daily aircraft utilization (hours) 12.7     12.9     (1.6 )%
Average stage length (miles) 971     974     (0.3 )%
  Six Months Ended June 30,    
Operating Statistics 2016   2015   Change
Available seat miles (ASMs) (thousands) 12,402,423     9,942,762     24.7 %
Revenue passenger miles (RPMs) (thousands) 10,619,724     8,498,622     25.0 %
Load factor (%) 85.6     85.5     0.1 pts
Passenger flight segments (thousands) 10,594     8,494     24.7 %
Block hours 191,943     160,896     19.3 %
Departures 73,185     61,208     19.6 %
Total operating revenue per ASM (TRASM) (cents) 9.05     10.53     (14.1 )%
Average yield (cents) 10.57     12.32     (14.2 )%
Average ticket revenue per passenger flight segment ($) 53.71     68.52     (21.6 )%
Average non-ticket revenue per passenger flight segment ($) 52.22     54.71     (4.6 )%
Total revenue per passenger flight segment ($) 105.93     123.23     (14.0 )%
CASM (cents) 7.25     8.20     (11.6 )%
Adjusted CASM (cents) (1) 7.05     8.20     (14.0 )%
Adjusted CASM ex-fuel (cents) (2) 5.44     5.76     (5.6 )%
Fuel gallons consumed (thousands) 147,563     119,857     23.1 %
Average economic fuel cost per gallon ($) 1.35     2.02     (33.2 )%
Average daily aircraft utilization (hours) 12.8     12.8     — %
Average stage length (miles) 983     982     0.1 %
                 

(1) Excludes special items.
(2) Excludes economic fuel expense and special items.

The Company is providing a reconciliation of GAAP financial information to non-GAAP financial information as it believes that non-GAAP financial measures provide management and investors the ability to measure the performance of the Company on a consistent basis.  These non-GAAP financial measures have limitations as analytical tools.  Because of these limitations, determinations of the Company's operating performance excluding unrealized gains and losses or special items should not be considered in isolation or as a substitute for performance measures calculated in accordance with GAAP.

   
Special Items  
  Three Months Ended
  June 30,
(in thousands) 2016   2015
Operating special items include the following (1):      
Unrealized losses (gains) related to fuel derivative contracts $ —     $ (3,669 )
Loss on disposal of assets 529     415  
Special charges 8,052     324  
Total operating special items $ 8,581     $ (2,930 )
Reconciliation of Adjusted Operating Expense to GAAP Operating Expense
(unaudited)  
  Three Months Ended
  June 30,
(in thousands, except CASM data in cents) 2016   2015
Total operating expenses, as reported $ 462,298     $ 431,106  
Less operating special items (1) 8,581     (2,930 )
Adjusted operating expenses, non-GAAP (2) 453,717     434,036  
Less: Economic fuel expense 113,192     131,576  
Adjusted operating expenses excluding fuel, non-GAAP (3) $ 340,525     $ 302,460  
       
Available seat miles 6,419,419     5,213,299  
       
CASM (cents) 7.20     8.27  
Adjusted CASM (cents) (2) 7.07     8.33  
Adjusted CASM ex-fuel (cents) (3) 5.30     5.80